Alcohol has not just given ‘high kick’ to the political debate, but also helped States and Union Territories (with legislatures) to improve earnings from ‘own tax revenue’ (SOTR). Deep inside into States’/UT’s Finances data showed revenue from State Excise Duty (which is mainly levy on alcohol) estimated to increase by over 34 per cent between FY 2019-20 and 2021-22.
Though all the regions registered an increase, South saw a higher growth mainly because of Andhra Pradesh. Northern region, too, had a good growth and so did the Central region, but prohibition in Gujarat and Bihar impacted the average of Western region and Eastern Region. State-wise, Andhra Pradesh saw a growth of around 117 per cent, while Telangana recorded an increase of around 42 per cent. In the Central region Uttar Pradesh and in the Eastern region West Bengal saw a rise of around 52 and 43 per cent, respectively.
No GST applicable
Alcohol is the only consumer product which is constitutionally debarred from applicability of Goods & Services Tax (GST). Though, there is no condition for petrol, diesel, ATF, crude and natural gas, still they are out of GST ambit.
This means while the GST Council is authorised to recommend rates for over 1,200 goods and all the services barring those in the negative list, States and UT are free to revise the levy on alcohol for human consumption. Since it is a demerit good, a higher levy does not invite agony from the masses, though any such move encourages hooch and results in tragedy. However, this does not discourage States/UT to hike levy.
In fact, immediately after the Covid-led lockdowns ended in May 2020, alcohol gave some comfort to State Finances as respective governments hiked the duty to get money to fund many relief activities.
At that time, a study by India Ratings & Research showed revealed that 15 States get at least 10 per cent of their earnings through a pool comprising State Goods & Services Tax (SGST); VAT/sales tax on petrol, diesel and jet fuel; and stamp, registration and electricity duty. In fact, the share of alcohol is more than 20 per cent for five States, including Karnataka and Rajasthan; 15-20 per cent for seven States, including Uttar Pradesh, Punjab and Madhya Pradesh; and 10-15 per cent for three States, including Andhra Pradesh and Odisha.
A back of envelope calculation based on total earnings estimated in a year and the number of dry days for sale, States and UTs all together earned between ₹600 crore and ₹650 crore during FY22. Apart from excise duty, States also collect license fees and permit fees, while the Centre collects only import duty on imported alcohol.
The sources of State government revenue are SOTR (States’ Own Tax Revenue), share in central taxes, SONTR (States’ own Non-Tax Revenue) and grants from the Centre. On an average between 45-46 per cent revenue receipts is through SOTR. More than 90 per cent of SOTR is generated from five revenue heads — taxes on property and capital transactions, State VAT, State excise, tax on vehicle and State Goods and Services Tax.